Sunday, October 14, 2007



Last week, the Bush Administration, with Treasury Secretary Hank Paulson leading the charge, announced with great fanfare something called the Hope Fund (or something like that), yet another scheme to bail out people who bought too much house and are now asking the rest of us to bail them out. The plan, of course, does not involve any taxpayer funds, but merely asks mortgage servicers and holders, along with the FHA (remember, no taxpayer money…hmm) to find ways to help homeowners avoid foreclosure.

To hear Hank Paulson and his various hangers-on and toadies promoting this program, one conjures up images of suddenly poverty stricken homeowners who, through no fault of their own, are about to be tossed into the street by ravenous financial slicksters. The truth, of course, is far from the picture painted by the politicians. On Thursday, the Wall Street Journal revealed the results of an analysis of more than 130mm home loans nationwide. The analysis focused on “high-rate” loans, which do not precisely coincide with subprime loans; focusing on high rate loans understates the problem. As the Journal article pointed out, “some subprime teaser loans do no show up as having high rates.” So the problem is actually greater than the study indicates.

Some of the findings of the study were as follows:

--Among white borrowers with incomes exceeding $300,000, the number of high rate loans jumped 74% last year.
--The amount of the average high rate loan grew 10% to $158,000 last year. Lest you think this is not all that high a number, second mortgages were included in the analysis.
--Last year, 13% of all high rate loans were made for properties not occupied by the borrowers.
--Among the geographic areas with the highest proportions of high rate loans (taken as a percentage of all mortgages made) in 2004-2006 were the poverty stricken areas of Miami-Miami Beach-Kendall, FL, Bakersfield, CA, Ocala, FL, Cape Coral-Ft. Meyers. FL, and Las Vegas.
--Lee County, FL, home of that bastion of poverty and hard luck Ft. Meyers, has the second highest rate of mortgage defaults in the U.S. so far this year.

The Journal went on to report the heart rending tale of Kristine McMahon, a (You guessed it.) mortgage broker with a “six figure income” who chose a sub-prime mortgage when it came time to refinance her $2.7mm home in the Hamptons because a conventional lender would not allow her to take out as much cash.

These are the types of people the “free market” Bush Administration is scrambling to help avoid default.

One cannot single out the Administration for criticism on this score; this half-hindquartered program was trotted out in response to even more grandiose plans by the Democrats to force the frugal to bail out the profligate. This is in the normal course of our government’s workings: The Democrats come up with some asinine plan to remedy some problem, real or imagined, with your money. The Republicans respond with a slightly less asinine plan to attack the problem, also with your money, making sure that the primary beneficiaries of the program are among the GOP’s favored constituencies. That is how the world works. But at least the Democrats don’t fall all over themselves bragging about their belief in “the free market” and “the private sector.” Their Party, at least in its modern guise, is built on suspicion of the free market. The Republicans are guilty of rank hypocrisy in this instance; while piously proclaiming their confidence in free enterprise and their distrust of big government, their Party exists merely to make sure that government grows in a direction that will enrich them and their favored constituencies. A real cynic (like the Pontificator) might go so far as to say that the Paulson plan emerged not in response to even more bloated Democratic plans but, rather, because the typical rock-ribbed, I pulled myself up by the bootstraps, why can’t those lazy louts with their hands ever extended, it’s all the fault of the poor, I love the free markets as long as the game is played on a field tilted in my direction GOPer is beginning to feel some heat from the free interplay of the markets, and will feel even more heat if the market is allowed to play itself out in the case of the mortgage mess. After all, there is nothing a “conservative” GOPer hates more than the free market when it isn’t making him rich. When that happens, “extraordinary circumstances” demand government action. But I digress.

The point, however, is not that the people who face financial ruin when their floating rate loans reset are wealthy, not so wealthy, or even poor. The point is that they bought more house than they could afford. They knew that a reset was coming that would render their mortgage payment unaffordable but thought they could somehow avoid the day of reckoning, perhaps because they thought that real estate can only go in one direction. Some might try to blame unscrupulous mortgage brokers (many of whom were selling shoes, hardware, gasoline, or fast food before becoming “mortgage consultants), and there is plenty of culpability there. However, as the old saying goes, you only fall for lies and stories when you really want to. People simply convinced themselves that they could have everything they wanted without having to pay for it. Now they are facing the day of reckoning. Why is that a problem of those of us who learned something of self-control, delaying of gratification, thrift, prudence, or simply waiting to get what we wanted until we were able to afford it? Or, better yet, why should those of us who have come to realize that life does not consist of possessions, that happiness and peace come not from getting what one wants but being satisfied with what one has be forced to indulge the deep seated insecurities of those who are desperately trying to fill the holes in their lives with, to put it bluntly, crap that they can’t afford?

Oh, yes, we are all being assured by both the Democrats and the Administration that no one wants the taxpayers to bail out profligate homeowners. Such assurances serve only to confirm that such a coerced transfer from the frugal to the profligate is exactly what’s coming. After all, which is the larger constituency? To which group do you think the average politician belongs? These are people who spend millions for offices that pay, at most, a couple hundred grand a year.

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